Blockchain has gained traction in recent years through its connection to cryptocurrencies including Bitcoin. In the simplest terms, Blockchain is a method of data storage, authentication, and verification. The details of what Blockchain is and exactly what it does are slightly more complicated. Commercial real estate is an industry which relies on up-to-date information being accurate for secure transactions. The applications of Blockchain for real estate investors are many. The question remains: will the industry adopt Blockchain technology?
What is Blockchain?
At its core, Blockchain is a system of data management. Like any other system of data management, it works by storing data into a database. Unlike other systems of data management, Blockchain works to actively authenticate incoming transactions internally. Transactions which have been verified as accurate are entered into the system. There are a few attributes of Blockchain technology which make it unique, including:
Shared ledger technology: one of the biggest problems with modern data storage and accessibility is that the same data may be stored in multiple places simultaneously. Consider the hellacious healthcare information sector for one such example. Blockchain stores data once, in a centralized ledger.
All data is immutable (unchangeable): it is impossible to alter so much as a single data point within a Blockchain once it has been authenticated and entered into the system. This offers a level of assurance that the data is accurate and reliable for any interested parties.
All transactions are entered as a part of a chain: the other key aspect of Blockchain is the actual method of data storage. All data points are given a unique identifying code and are assigned as part of a larger chain. This organizes transactions in such a way that the history of transactions can easily be linked going back and moving forward.
Blockchain Blocks for Data Organization
So what exactly are “blocks” and what exactly are “chains”?
Blocks simply refer to any new piece of information or sets of information which are authenticated and added to the blockchain network. Blocks can include transactional data, informational updates, or literally any other new or altered piece of information. What is important to understand about blocks is that old information is never simply updated as it might be in a traditional database system. Instead, any updates are added as new blocked which amend previously stored data.
Chains are methods of connecting blocks both to create a transactional history and for users to look at a series of data points on a single subject. As a potential example within the commercial real estate industry, a chain might be a particular property, where data points like purchase history, address, price changes, ownership changes, etc. all might be considered blocks.
Both blocks and chains are given unique IDs which allow them to be both tracked and secured in Blockchain system. Again, the main advantage of Blockchain is that all users can rest assured that the information is accurate and up-to-date. Even cloud databases can be altered and scattered. Blockchain fights to solve this common problem.
Blockchains and Commercial Real Estate
So why would this technology be a good fit for the commercial real estate industry? There are a few high level reasons, including:
Real estate information research would be centralized
This is actually a bit of a misnomer, as Blockchain technology is intentionally decentralized to prevent fraud. Yet the fact remains that Blockchain data storage means that any commercial real estate research can be performed knowing that the information is good. A current real estate research effort might involve wading through multiple platforms to make sure you aren’t missing anything.
Commercial real estate analytics would be easier to predict
Continuing with the idea that accurate and verified data is invaluable for commercial real estate investors, being able to search real-time owners, brokerages, and other transactional data gives investors a better idea of the current real estate environment. This lessens the pressure of finding accurate data and frees up investors to do their own analyses with confidence.
Blockchain would revolutionize commercial real estate financials
While Blockchain will not make commercial real estate into Bitcoin users, it will provide an accurate representation of who owns what properties, where the backing money resides, the accurate picture of financial transactional histories, and much more. In an industry where confidence in buyers and sellers is paramount, the value of these assurances cannot be overstated.
Verifying pre-leasing financial details and due diligence
Where the current method(s) of financial due diligence in the CRE sector is a slog, Blockchain would streamline this process significantly. The verification process of signatures, transactions, and financial statements all goes out the window when this information can be quickly and easily viewed all in one location. With full Blockchain integration, commercial real estate transactions could use smart contracts and input all of the information in real-time.
Blockchain is an ideal fit for the commercial real estate industry. The question of whether or not the industry will choose to adopt this type of technology seems to be more of a when than if. As data solutions become more sophisticated, the antiquated methods of due diligence, data verification, and transactional history hunting will all go the way of the dodo. This being said, it is impossible to know for sure. By the time our industry is ready to adopt this disruptive technology, a new champion might rear its head.